CHAPTER 8 8.1 Budgeting.  Do you have unlimited resources to buy all the things you want?  To achieve financial success, you will have to plan and work.

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Presentation transcript:

CHAPTER Budgeting

 Do you have unlimited resources to buy all the things you want?  To achieve financial success, you will have to plan and work for it.  Two key elements of financial planning  budgeting  financial records

 What is disposable income? The money you have left to spend or save after taxes have been paid. Think about it: ALL THE MONEY YOU RECEIVE IS SPENT, SAVED, OR INVESTED.

 What is a financial plan? A set of goals for spending, saving, and investing the money you earn.

 Financial Planning helps you to do what? -Evaluate options -Prioritize options -Avoid wasteful spending -Organize financial resources -Avoid money worries

 What is the first step toward achieving financial goals? Preparing a budget What is a budget? A spending a saving plan based on your expected income and expenses.

 In a budget, money coming in must equal what? Money going out(spending plus savings) Must a budget balance? Yes

 Steps to prepare a budget: 1 – Estimate your total expected income 2 – Decide how much of your income you want to save 3 – Estimate your expenses 4 – Balance your budget

 See monthly budget on page 177. Mike and Jennifer Harris estimated their expected income: adding their paychecks and anticipating future interest earned on savings and earnings on investments for a total expected income of $3500 a month or $42,000 a year.($3500 times ?)

 What is the difference between fixed and variable expenses? Fixed are costs you are expected to pay at specific times regardless of other events. You cannot change them without making a major revision in your lifestyle. (Most financial advisers suggest fixed expenses should make-up no more then 50 to 60 percent of take-home pay.

 Variable expenses are costs that vary in amount and type, depending on events and the choices you make.  Note: With fixed expenses, you tie up present as well as future income.  Is savings an example of Variable or Fixed expense? (house pymt, car loan, utilities?)

 What four types of personal records should you keep? -Income and expense records -A Net Worth Statement -A Personal Property Inventory -Tax Records

 W-2  Bank Statements  Receipts  (store these documents in a safe place)

 What you Own (Assets)  What you Owe (Liabilities)  The difference between the two (Net worth)  Assets = Liabilities plus Net Worth 10 (Assets) = 6 (Liab)+ 4(net worth) or 10 (Assets)– 6(liab) = 4(net worth)

 A list of valuable items you own  Their purchase price  Their approximate current value When might this statement be especially useful? In case of a fire, theft, or property damage

 If someone was verifying your financial status for credit approval, what statement would be more beneficial, A Networth Statement or a Personal Property Statement?